China’s exports fell for the fourth consecutive month in August, but the trade downturn eased slightly. Experts say China’s trade is set to worsen further this year, making policy support crucial for a turnaround rather than a revival in global demand or a rebound in domestic activity.
Exports fell 8.8 percent year-on-year in August, the fourth consecutive month of loss, but topping Reuters poll predictions of a 9.49 percent drop and July’s record of minus 14.5 percent.
According to the General Administration of Customs of China (GACC), imports decreased 7.3 percent year-on-year, topping predictions of a minus 8.16 percent, which is better than the negative 12.4 percent reported in July.
The declines in exports and imports were lesser in August, though, with exports rising 1.1 percent and imports improving 7.6 percent from July. This reflects a minor improvement in the country’s trading activities, according to GACC.
“However, while export volumes continued to hold up, this resilience may not last, given the challenging outlook for global goods demand,” said Capital Economics, a London-based economic research firm, in a note meant exclusively for clients but accessed by The Epoch Times.
According to the firm, the drop in exports compared to a year ago was primarily due to exporters cutting their prices in recent months in response to rising supply and weak overseas demand. Factoring in pricing impacts and seasonality, it is likely that export volumes increased slightly last month and were little changed from the previous year, it added.
Similarly, while the contraction in imports narrowed in dollar terms (from -14.5 percent year-on-year to -7.3 percent last month), after accounting for seasonality and changes in import prices, the import volume rose 4.3 percent month-on-month.
Depressed Global Demand
According to China-based securities broker Everbright Securities, China’s exports are suffering due to depressed overseas demand, particularly from the United States and Europe, due to weakening demand and increasing trade restrictions.GACC numbers reveal that exports to the United States and European Union dropped 9.5 percent year-on-year and 19.6 percent year-on-year in August, respectively, while exports to ASEAN member nations fell 13.3 percent, improving from -21.4 percent year-on-year in July and -16.9 percent year-on-year in June.
The drop in trade with the United States comes after years of escalating tensions between the two countries. Even as the Biden administration has attempted to reestablish high-level communication with Beijing by sending U.S. Commerce Secretary Gina Raimondo to visit China last month and establishing committees to address commercial concerns and export controls, the growing tensions between both nations are exacerbating a slump in trade in the world’s top two economies.
Besides, while China’s trade perked up briefly after Beijing lifted COVID-19 lockdowns, exporters struggled this year owing to rising worldwide prices and overseas buyers pulling back on buying Chinese products.
“We believe weak external demand and base effects will continue to drag down export figures on a year-on-year basis [going forward],” said Everbright in an exclusive client note accessed by The Epoch Times. “Imports should also continue to post negative growth on a yoy [year-on-year] basis given ongoing weak household sentiment, and new import restrictions.”
Need for Policy Support
The persistent weakness in trade and manufacturing comes at a time when central authorities are dealing with upheaval in the property sector—one of the economy’s primary growth engines—increasing fears about a post-pandemic recovery that has yet to take off.Worse, according to Capital Economics, most measures of export orders point to a more substantial pullback in foreign demand than has so far been reflected in the customs data.
Although consumer spending in developed economies has been resilient recently, the near-term outlook for global goods consumption remains challenging, given that the reliefs announced by the governments to help their economies pull out of the pandemic is still unwinding and that the impact of monetary tightening in the United States and Europe is yet to be fully felt.
This is why more policy support would drive China’s trade recovery rather than a rebound in global demand or an increase in local activity, say experts.
“The focus of the policymakers [currently] is on the domestic economic challenges, particularly the property market, [but] the wave of policy measures announced in the past few weeks help on the margin,” wrote Zhiwei Zhang, president and chief economist at the Shanghai-based Pinpoint Asset Management, in a note to his clients.
“We need to wait and observe how effective these steps would be in stabilizing the broader macro-outlook [and] Beijing will need to launch more policy measures to boost growth in coming months,” added Mr. Zhang.
Meanwhile, China’s yuan dropped to its lowest level versus the dollar since 2007 following the sharp drop in exports in August, reflecting the difficulty of the country’s industrial sector in regaining momentum in the world’s second-largest economy.
The yuan dipped 0.1 percent to a low of 7.3259 per dollar on Thursday, lower than levels recorded during nationwide pandemic lockdowns last year.
